A number of big events coming up for Ukraine:
First, Normandy format talks are looming for Dec. 9, where President Volodymyr Zelensky will finally sit opposite President Vladimir Putin.
There is much optimism building around these talks as the mood music from both sides has been much more constructive than had hailed prior rounds between Putin and former President Petro Poroshenko. Partly this reflects that Zelensky was elected on a ticket to deliver peace, and he has already shown a willingness to compromise therein with prisoner exchanges and de-escalation in Donbas.
That said, the red lines between the two sides as per the Minsk agreements are now so set, it is really hard to see where each can compromise.
For Zelensky his hands are tied by red lines already set by the body politic in Ukraine – and detailed by the publication of a joint statement of position this week by the three main opposition political parties – Fatherland, European Solidarity and Voice. This entails no compromise around changes to the constitution/autonomy for Kremlin-controlled separatist areas of the Donbas, Ukraine has to control its border prior to elections being held controlled in occupied territory, and any such elections being controlled under Ukrainian law.
Demonstrations are already planned for Kyiv next week, just to reinforce the pressures on Zelensky now. He has little to give to Putin, otherwise he risks destabilising domestic politics – he has offered an all-for-all prisoner exchange, which would be a win for both sides I guess from this round of talks, and will help to improve the mood of reconciliation, but its hard to see any movement on the substantive issues as noted above.
While Zelensky has little room to compromise – the question is whether Putin is willing to offer anything? He has much more flexibility – he has total control of Russian politics and he can sell literally anything he agrees in Paris. Thus far Putin has conceded little ground to Ukraine – albeit prisoner exchanges have accelerated under the Zelensky term. But Putin seems to be wanting to send an image to the West that he is being reasonable in talks with Ukraine, and more generally. But, given Putin’s track record, he is not one to roll over easily, and “compromise” is not generally in his vocabulary at least towards foes.
Second, ongoing talks between Ukraine and Russia over gas transit – as the current deal ends at the end of December.
Talks cover gas transit volumes, price and the duration of any contract. The two sides seem to have agreed that price will be determined by European norms – brokered by Europe. Volumes can be agreed upon, but the difficulty seems to center on the duration of any deal. Ukraine is looking for a longer transit agreement (5-10 years) – it currently earns around $3 billion from gas transit fees (2% of GDP) – while Moscow wants only a short-term deal (12-18 months) to cover gas transit needs pending completion of North Stream 2, and other pipeline projects which look to cut Ukraine out of the gas supply chain.
Added into the mix are awards to Ukraine for various arbitration court rulings – currently around $2.5 billion in its favor, but which could go higher. Moscow has hinted that it wants the cancellation of all these claims as the price for agreement on a new transit contract – albeit why would Ukraine agree to any such terms, barring a new long-term agreement over gas transit?
And even then why should it – from Ukraine’s position its negotiating position seems strong as: a) it has already stockpiled enough gas to secure its energy supply through this winter; b) it is already well prepared for the shock of losing the $3 billion gas supply contract – the economy is in a much better shape; c) most of the pain from a suspension on gas transit would fall outside of Ukraine, on consumers of gas in Europe, and on Gazprom which still needs Ukraine to transport gas to Europe, at least for the next year or so. D) It still has the benefit of the Stockholm Court ruling in its favor, so a potential $2.5 billion cheque to at least cover the hit for a year or so from the loss of transit fees – and potentially more in terms of awards given other pending arbitration cases.
There might be pressure on Ukraine, from Europe, to concede to a temporary gas transit deal – but why should Ukraine help either Russia or Europe out herein, when both are cooperating to cut Ukraine out of gas transit via investment in North Stream 2? Ukraine’s leverage is now. So Moscow might just be forced to concede to a long-term gas supply deal, or the European Uion/Russia compensate Ukraine in other ways – agreeing a larger settlement over the various arbitration cases. As ever with these gas talks the game from the two sides is to make sure the other ends up getting the blame from Europe for stalling gas supplies to its consumers. So both sides are playing a high stakes PR game. Moscow might not mind a suspension in gas supplies to Europe if Ukraine is deemed to be responsible for being intransigent.
I guess concessions around gas transit could also play into the Normandy format peace talks – and be presented as a concession, potentially by Moscow, at least.
Third, International Monetary Fund talks.
There have now been two IMF missions to Kyiv and intensive talks at the IMF in October about trying to secure a new $5.5 billion loan from the fund. The latest fund mission left Kyiv a week or so ago without the expected staff-level agreement albeit both sides noted that progress had been made in discussions.
The red line for the fund seems to be uncertainty around the PrivatBank issue – and nervousness as to what happens if the latest hearing in the Ukrainian courts, due on Dec. 16/19, rules against the nationalization of the bank in 2016. The latter scenario seems quite likely given that Ukrainian courts/judges go by process/the letter of the law rather than sense/meaning as is the case, for example, in the United Kingdom.
The fund likely wants to know what the plan B is – there has been the talk of a new banking law being passed which would prevent the de-nationalization, albeit it is unclear whether this can be passed in time, or whether it would be constitutional.
Intimidation against the National Bank of Ukraine/PrivatBank staff has not really helped the mood music.
But the IMF is in a difficult position as while it wants to help/back the reformers in Ukraine – who are on the same page about PrivatBank – the fund has a fiduciary responsibility to be assured about debt sustainability/risks, and the likely insolvency of the largest bank in the country in a scenario where the courts rule against nationalization is a pretty big risk to the fund getting any monies lent to Ukraine back.
After the debacle in Argentina, and given all the focus in Trump impeachment hearings about corruption in Ukraine, I doubt the fund of the U.S .administration would want negative headlines about Ukrainian oligarchs getting bailouts from IMF taxpayers’ money.
I think there is likely a desire to get at least a staff-level agreement before the Normandy format talks, to perhaps cement Zelensky’s position and the message that the West still stands firmly behind Ukraine. But this might now be ambitious, given question marks still around the results of the Dec. 16-19 court hearings and the counter-measures then that the Ukrainian authorities are able/willing to deploy.
I sense still there is some doubt/frustration in the minds of international financial institutions whether the top levels of the Zelensky administration are serious about creating a level playing field for oligarchs/business, and the PrivatGank case is clearly a test case. So I think there is a desire to try and let the PrivatGank court case run its course, to test out the Zelensky administration, while at the same time still trying to support reformers in the administration, and Ukraine as it heads into the Normandy format talks and gas talks as well.
Just wondering whether the Europeans could pressurise the IMF to cut Ukraine a soft deal, to encourage compromise around gas supply talks – but that said, I am not sure the Ukrainians would want to bow to what they would see as Russian bullying. Any gas supply deal for Ukraine has to be seen as a win for Ukraine – I don’t think Ukraine will roll over therein.
How is all this going to pan out? Actually I just don’t know!
